Will Try To Resolve Pending Angel Tax Cases: FM Nirmala Sitharaman

The Centre will make efforts to resolve all the pending angel tax cases to provide relief to startups, finance minister Nirmala Sitharaman said. 

“My approach would be to see how best we can sort this out (pending angel tax cases). Because it can’t be that we’ve removed a tax but those litigations are going to hang fire. That cannot be a fair treatment. We will have to work out something,” the finance minister told ET in an interview.

Earlier this week, Sitharaman announced abolishment of the infamous angel tax during her Budget speech. While the startup ecosystem lauded the move, many raised concerns about the pending angel tax cases being faced by startups. 

Mohandas Pai, the former CFO of Infosys and partner at Aarin Capital, told Inc42 earlier that the Centre must look into aiding people stuck in “the angel tax web”. “The government must now withdraw all cases pending under angel tax in the last five years and state clearly that no angel tax will be levied on any pending assessments,” he said. 

The finance minister, delving into the government’s rationale behind angel tax abolishment, said that the provision was acting as a hindrance for the growth of the startup ecosystem. She highlighted that fears persisted despite the government’s actions to promote India’s startup ecosystem.

“… Fear persisted that this could be one of the trigger points for income-tax to take action. We thought there are no more ways in which we can remove this suspicion from the minds of people. Equally, we were confident that the PMLA (Prevention of Money Laundering Act) and the Black Money Act are adequate to sort this out, so we’ve just removed it,” she told the publication. 

It must be noted that Angel tax, or Section 56(2)(viib), was inserted in the Income Tax Act, 1961 in 2012 to keep shell companies at bay and prevent money laundering. However, over the years, it became a major concern for startups as tax officials began issuing tax notices to startups over their valuation methodology.

Angel tax was payable on capital raised by unlisted companies if the value of the shares issued to investors exceeded their fair market value (FMV). It was a long-standing demand of the startup ecosystem to remove angel tax.

Earlier this week, Central Board of Direct Taxes’ (CBDT) chairman Ravi Agrawal said that the removal of angel tax will boost the country’s startup ecosystem by bringing in more investments.